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Hoffman and Brown Article Accepted

Hoffman and Brown Article Accepted in Labor History

The article appears in Labor History (forthcoming Vol. 58, 2017).

Employee ownership and union labor: The case of United Steel Workers of America

Richard C. Hoffman, Professor of Management, and Marvin O. Brown Jr., Lecturer in Management

Union-management relations in the U.S. is best described as adversarial. However, under certain circumstances, they can become cooperative. Although it is widely believed that the United Steel Workers of America (USWA) has the most experience with employee buyouts, little has been written on the subject. This study uses a process model to examine the motivation, the information sharing, and the building of trust and commitment necessary to facilitate employee buyouts of steel firms during the 1980s and 90s.

The three primary motivations behind the union’s use of investment bargaining (e.g., employee buyouts) included the decline of the US steel industry due to globalization. By 2000 output was half of what it had been earlier in the century resulting in the loss of 374,000 jobs over a 25 year period. Secondly, legislation strengthening the regulation of Employee Stock Option Plans (ESOPs) provided a viable vehicle for implementing buyouts with protections for employees. Lastly, in 1983, Lynn Williams became the new president of the USWA. He took a strategic view and wanted to make sure that, if the employees had to make concessions, they should gain something in return.

Information sharing with stakeholders evolved out of negotiations and were codified into union policies. The key policies included that employee buyouts should be part of the collective bargaining process; were not a replacement for pension plans, and employee stockholders should have the same voting rights as other shareholders. However, most of the information sharing occurred during the buyout process wherein union and management performed due diligence to determine if there was sufficient market for firm survival. The second step was the feasibility study conducted in concert with investment bankers to further assure the success of a buyout. Only 20% of the firms made it through these two steps. The last step was actually negotiating the terms of the buyout.

Trust and commitment between the parties was developed during the negotiations as well as with the establishment of the Worker-Ownership Institute by the union where management, union officials, and members of buyout firms could meet and discuss common problems. Moreover, commitment was built with the establishment of employee empowerment programs as part of the buyouts including board representation, team management, training, etc. Four case studies are presented to illustrate the process and outcomes.

The primary motivation behind employee buyouts by the USWA was the desire to preserve member jobs. The process was conducted in the traditional quid pro quo framework of obtaining economic benefits in exchange for wage cuts. The buyouts always included practices to give employee-owners a greater voice in their firms. Finally, the buyouts did not save the industry but only prolonged the survival of firms and jobs, often long enough for many employees to earn a pension.

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